This episode is what an Acid trip must be like. It is the most wacky, crazy, way-out-there episode in the series. And it does a great job being just that. This is the final installment before the big event, before the Day of Black Sun and the accompanying invasion. With the gang having dallied around the Fire Nation for the first half of this season, one might expect this episode to lead the story up to the invasion, to prepare for the oncoming battles, to set the mood. What it does is something else entirely: It creates balance.
In 'Avatar', balance is a very significant leitmotif. It can be found in the show's very premise, where the Avatar has to bring balance to the world, to many different aspects, such as the balance of the four elements, or between the Spirit World and the mortal world. But balance is also present on a meta-level, be it the different emotions the show invokes, or even a balance between action, drama, and humor.
So why such a silly episode? Because it might very well be the last chance we get to laugh before the serious, world-changing events start to roll. And that for several episodes. The idea is simple: Aang, upon finding out that the invasion is just mere days away, panics, and deprives himself of sleep to avoid nightmares. These, and the various methods Katara, Sokka, and Toph use to calm him down, add a whole lot of hilarity to the episode. All of this culminates to the final scene, when Aang is about to lose his mind. The build-up is gradual, but with each step, it get more and more unreal and chaotic. Appa and Momo talking is a nice start, but then, with cheering koala-sheep, an eight-armed Guru Pathik, and a dancing Ozai tree, this is about as downright weird this show might get. Sure, this is not for everyone, but it's the overload of silliness the show needs before the next few episodes.
Two moments stick out above the rest. The first is Aang's daydream about confessing his love for Katara. After this issue has not been addressed for several episodes, it is wrapped up in a cocoon of humor, playing down the seriousness and romance in favor of a more light-hearted approach of the subject. While this scene is nice, and builds up on Aang's true concerns, it is fan service more than anything else, and a really big tease for all the fans waiting for something like this to actually happen. The second moment is Aang's serious nightmare. It stands out from all the comedy, and can be seen as some sort of prophetic dream, filled with images of what can go wrong. How much this dream foreshadows the future, however, remains to be seen.
But among all this chaos, the episode still displays the great juxtaposition of storylines it has always possessed. Aang's time is a living nightmare, his greatest challenge is but a few days away, and his mind starts playing tricks on him. On the other side, Zuko's life seems to have become perfect. He regained his position as the Fire Nation's beloved prince, he's enjoying his time with Mai, and he is finally home. Aang's events are despair, while Zuko's displays stability. But in the end, things turn right around for both of them. While Aang manages to relax again, Zuko discovers that his life is not what he imagined it to be. These turn of events are sudden, but they give a very nice conclusion. The gang is now fully ready for the invasion, and Zuko has yet another cliffhanger with unresolved personal tension.
Overall, 'Nightmares and Daydreams' is an effective episode that allows the audience to take a final breather and laugh one last time before the show plunges itself into more serious territory.
This episode does not deliver anything that would be considered useful or meaningful. The whole episode depends on stretched out hallucinations and non-productive lollygagging to barely scrape together the required time.
Aang is pestered by reoccurring nightmares of his battle with Firelord Ozai. In his dreams he is always inadequately prepared and embarrasses himself. The first time it happens one laughs, after the third, one sighs. The dreams lose their comic value and begin to bother the viewer with their repetitiveness and futility.
Scenes that should take mere seconds to wrap up are inflated and diluted in an attempt to occupy time. One hallucination in particular, a refreshingly entertaining battle between Appa and Momo, lasts several minutes. The viewer is taken into another dimension as sheep cheer from the sidelines and rocks move themselves across the ground.
It would be a productive use of time to skip over this episode completely. All the viewer needs to know is that the troupe is waiting for the invasion force to arrive and Aang has trouble sleeping. Nothing else of consequence happens. There's about two minutes of genuinely bearable content, and one imagined kiss that almost redeems this crippled episode.